EU External Investment Plan

An External Investment Plan, proposed by the European Commission on 14 September, would support investment in our partner countries, in Africa and the European Neighbourhood, to strengthen EU partnerships, promote a new model of participation of the private sector and contribute to achieve the Sustainable Development Goals. The plan forms part of broader efforts the EU is pursuing on the basis of the new Partnership Framework adopted in June.

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WHY DO WE NEED THE EXTERNAL INVESTMENT PLAN?

Economic growth in developing countries has now reached its lowest
level since 2003. Instability and conflicts in Africa and the EU
Neighbourhood have been aggravated by the global economic crisis,
resulting in increased overall indebtedness, reducing access to finance
for badly needed investment. Instability and conflict have also
exacerbated the ongoing migration crisis with more people than ever on
the move in Africa and in the Neighbourhood This clearly marks the gaps
in investment in those countries and the added-value targeted action by
the European Union can have.

This poses short and long term challenges that need to be addressed
in a spirit of partnership, to support inclusive and sustainable growth,
creating jobs and contributing to address the root causes of migration.
A partnership that is extended not only to Third Countries, but also to
the private sector that is called to join our shared efforts to bring
prosperity and economic growth. Through the Investment Plan the EU will
not only provide targeted guarantees but will also contribute to
ameliorate the investment climate and the overall policy environment in
partner countries along the same lines as the Investment Plan for Europe
and its European Fund for Strategic Investments (EFSI).

Business environment and investments in fragile countries:

Foreign Direct Investment (FDI) and other private financial flows
have declined across developing countries since the 2008 financial
crisis.

Only 6% of overall Foreign Direct Investment (FDI) to development countries are going to fragile countries (2012).

Of those investments, as much as 72% concentrated in ten resource-rich countries.

The cost of setting up a business in fragile African countries 3xhigher than in non-fragile African countries

A NEW APPROACH: MOVING BEYOND CLASSICAL DEVELOPMENT ASSISTANCE

Traditional development assistance alone cannot meet the challenge of
achieving sustainable development. It must be complemented by other
tools, in order to make best use of and leverage scarce public funds.

The implementation of the External Investment Plan will allow the EU
to lead by example in developing more effective partnerships that go
beyond classical development assistance. This is a fundamentally new
approach to the way the Union supports development and to the way the
Union identifies, prepares, and delivers support for investment projects
in countries outside Europe. The Plan offers an integrated and coherent
framework enabling full cooperation between the EU, international
financial institutions, donors, public authorities and the private
sector.

FUNDING

The new European Fund for Sustainable Development lies at the core of
the External Investment Plan and is expected to trigger additional
public and private investment volumes, mobilising total investments of
up to EUR 44 billion, based on EUR 3.35 billion contribution from the EU
budget and the European Development Fund. In order to enhance further
the firepower and the efficiency of the new Fund, the Commission calls
on the Member States and other partners to match these EU contributions.
Member States can do so via second-loss guarantees. If they match the
contribution to the guarantee, the total amount of additional investment
could be EUR 62 billion. If Member States also match the contribution
to the blending, this amount could reach EUR 88 billion

THE EXTERNAL INVESTMENT PLAN WILL…

contribute to achieving sustainable development in our partner countries in a coherent and consistent manner

mobilise investment and leverage funds: it will help reach those
countries where investments are currently difficult and facilitate
investments by (private) actors that would otherwise invest less or not at all in these areas.

target socio-economic sectors and in particular infrastructure,
including energy, water, transport, information and communications
technology, environment, social infrastructure, human capital, and
provide finance in favour of micro-, small- and medium-sized enterprises
with a particular focus on job creation.

Improving economic governance, the business environment and engaging with the private sector

The EFSD will be composed of two Regional Investment Platforms (Africa and the Neighbourhood). They will combine existing blending[1]
instruments and will operate as a one-stop-shop to receive proposals
from financial institutions and other public and private investors.

The EFSD will also create a new guarantee, which will provide
partial guarantees to intermediary financing institutions, which in turn
will provide support, via loans, guarantees, equity or similar
products, to final beneficiaries.

The objective is to leverage additional financing, in particular
from the private sector, as the EFSD guarantee will reduce the risk for
private investment and absorb potential losses incurred by eligible
counterparts, for example public financing institutions and private
sector investors.

The Commission has made significant resources available for
technical assistance to help partner countries attract investment by
developing a higher number of bankable projects and making them known to
the international investor community

Structured dialogue is needed in order to understand the needs and
constraints of the local private sector and to boost the potential of
the European private sector to invest in and engage with businesses in
partner countries.

The Commission will also, through EU delegations and in coordination
with the Member States, facilitate and support inclusive public-private
policy dialogue in partner countries to identify key challenges and
opportunities.

The Commission will provide targeted capacity building for private
sector representatives, including chambers of commerce, social partners,
and organisations representing micro-, small- and medium-sized
enterprises, female entrepreneurs, and firms and workers in the informal
sector.

The EIP will reinforce the economic and social policy dialogue
between the EU and the partner countries in order to develop legal
frameworks, policies and institutions that are more effective and
promote economic stability and inclusive growth.

Political and policy dialogues with partner countries will be
maintained, in order to support i.a. sustainable and inclusive growth,
respect of human rights, fight against corruption and organised crime,
illicit financial flows, and improve trade relations of the EU's
development partners. Generally, they will contribute to better
regulation and liberalisation of partner country markets, improving
employment opportunities and supporting the development of the local
private sector.

[1]
Blending is the use of a limited amount of EU money (grants) to
mobilise additional support, for instance in the form of loans, from
financial institutions and from the private sector to strengthen the
development impact of investment projects.